Good news: you can now be investing in Bitcoin and Ethereum completely tax-free, right in the comfort of your TFSA.

Before we continue, a few cautionary words:

• Please understand that investing in cryptocurrencies comes with risks. Cryptocurrencies, or cryptos, are known to be highly volatile investments. While we hope that the value of your investment will appreciate over time, as with all investments there is always a risk that the value may depreciate, and there is a possibility that you may lose your investment.

• The content provided in this article is for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. Past investment performance is not a guarantee or predictor of future investment performance.

• Prior to investing in cryptocurrencies, we encourage you to conduct your own research and due diligence.

Investing in Bitcoin and Ethereum, Tax-Free

This is possible thanks to the recent development of closed-end cryptocurrency funds by companies 3iQ and Galaxy Digital, and exchange-traded fund (ETF) from Purpose Investments.

While you may not be directly owning Bitcoin and Ethereum like you would in a digital wallet, you will indirectly own these cryptocurrencies through units in funds that already hold Bitcoin and Ethereum.

The primary advantage of having these funds in your TFSA is that your investments will grow tax-free and won’t be charged any capital gains tax, ever. Considering the tremendous investment returns of Bitcoin and Ethereum over the last few years. This would make sense to a lot of investors trying to curb their capital gains tax.

Another great advantage of crypto funds is that the funds directly invest in cryptos and hold the majority of them in cold storage, which are the most secure method of maintaining cryptos.

The disadvantages include all of the benefits that you would otherwise have if you were to hold these cryptocurrencies in your digital wallet or crypto exchange, for instance sending, receiving and converting coins as well as staking. In addition, you can trade cryptos 24/7 in a crypto exchange, while in a TFSA you can only trade within normal market hours.

The Bitcoin and Ethereum Funds

So far, in Canada there just two companies that provide these closed-end funds, and one company that provides an ETF. Also, note that these funds are managed by professional fund managers and therefore have management fees. Keep in mind the management fees are different between these funds.

On another note, there are plans to launch more crypto funds in Canada. Expect more investment management companies to develop their own versions of Bitcoin and Ethereum ETFs, and potentially funds for other cryptos. The more crypto funds are available in the marketplace, the more competitive the management fees will be.

Purpose Investments is offering:

• Purpose Bitcoin ETF - tickers are BTCC.B in CAD or BTCC.U in USD (management fee is 1.00%)

3iQ is offering:

• The Bitcoin Fund - tickers are QBTC in CAD or QBTC.U in USD (management fee is 1.95%)

• The Ether Fund - tickers are QETH in CAD or QETH.U in USD (management fee is 1.95%)

Galaxy Digital is offering:

• CI Galaxy Bitcoin Fund - tickers are BTCG in CAD or BTCG.U in USD (management fee is 1.80%)

If you are considering buying these funds in a TFSA, we recommend Wealthsimple Trade, a commission-free trading platform with millions of Canadian users. Sign up here and get $10 to start investing for free.

Major Takeaways

1. Investing in Bitcoin and Ethereum in your TFSA can save you lots of money on taxes.

2. Bitcoin and Ethereum funds are publicly available in Canada today.

3. Extra caution must be taken before investing in cryptocurrencies.

We hope this helps you become more financially independent.

As always, feel free to reach out to us if you have any questions. We are more than happy to help.

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Money that is sitting at home or in a bank chequing account won’t make you money. Period. In fact, money that isn’t invested properly will lose its purchasing power over time due to inflation. The secret to making money work for you is to put your money to work.

Your goal is to move your money away from your chequing account and put it to work.

Money has to be invested in order to generate more money.

There are countless types of investments, including stocks, bonds, savings accounts, GICs, mutual funds, exchange-traded funds, segregated funds, hedge funds and real estate. All of these investments have different risk-reward characteristics.

Some of them may be riskier than others. As such, caution and due diligence must be enforced prior to putting money into any type of investment.

The Simplest Switch: High Interest Savings Account

While you’re contemplating where you should invest your money, in the meantime, the simplest and fastest thing you can do is move your money from your chequing account to a high interest savings account which will award you a small return for absolutely no risk or cost.

There are many high interest savings accounts in Canada, some offering more interest than others. High interest savings accounts are just like regular savings accounts, except they provide a higher interest rate and come with a bunch of other perks, all free of charge.

EQ Bank’s no-fee, risk-free, high interest Savings Plus Account offers 1.50% interest on every dollar saved. So, if you have $20,000 in your savings account, that’s an extra $300 a year that you can make just from interest. Plus, get $20 when you sign up to EQ Bank.

Major Takeaways

1. Money will lose its value over time if it isn’t invested properly.

2. Keeping your money in a chequing account will not generate any more money for you.

3. The very least you can do is hold your money in a high interest savings account.

We hope this helps you become more financially independent.

As always, feel free to reach out to us if you have any questions. We are more than happy to help.

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Short answer: both are great ways to invest and diversify your money.

Long answer: it depends.

This is our ultimate quick guide for mutual funds vs ETFs. Let’s break down the main features of both investment products.

Mutual Fund Features:

• A diversified pool of securities, most commonly stocks and bonds that is actively managed by a professional Portfolio Manager.

• Higher fees than ETFs. This is because of active management – the Portfolio Manager seeks to preserve your capital as well generate returns that outperform the overall market.

• The Portfolio Manager will most often employ a fundamental investing strategy, which relies on rigorous investment analysis and research, and the Portfolio Manager’s own professional judgement in choosing which securities to buy and sell.

• Traded and priced only once per day after market close.

ETF (Exchange-Traded Fund) Features:

• A diversified pool of securities, most commonly stocks and bonds that is passively managed by a professional Portfolio Manager.

• Lower fees than mutual funds. This is because of passive management – the Portfolio Manager seeks to replicate the return of the overall market.

• The Portfolio Manager will most often employ a buy-and-hold investing strategy, with regular rebalancing.

• Traded and priced throughout the day like a stock.

Comparing Mutual Funds vs ETFs

Before investing in a mutual fund or ETF, it’s important to take a look at the historical after-fee performance of the funds, as well as the MER (management expense ratio) of the fund, which is essentially the fee that you’re paying for holding the fund.

For example, Dynamic Power American Growth (Series F) is a mutual fund with an MER of 4.25%, whereas iShares Core S&P 500 ETF is an ETF with an MER of 0.10%. The Dynamic fund invests in a concentrated portfolio of handpicked American stocks, while the iShares ETF replicates the S&P 500 Index, which is an index that tracks the top 500 largest American stocks.

By comparing just the fees, we may come to the conclusion that it may be more cost-effective to invest in the iShares ETF. However, let’s compare these two funds’ returns.

An investment in Dynamic Power American Growth (Series F) would have returned you 28.06% annually over the past five years, as compared to 13.49% with iShares Core S&P 500 ETF. These returns are as of January 30th, 2021.

Before choosing mutual funds or ETFs to invest in, conduct your own research and cost-benefit analysis to figure out what factors are more important to you.

Also, remember that the underlying holdings vary between all mutual funds and ETFs. For example, a mutual fund that invests in American stocks will have different holdings than another mutual fund that also invests in American stocks.

Even if two mutual funds invest in the same geographic region, they may still employ different strategies to investing and have different sets of criteria as to which holdings are allowed in their portfolios.

Are you interested in investing in ETFs? We recommend Wealthsimple Trade, a commission-free trading platform with millions of Canadian users. Sign up here and get $10 to start investing for free.

Major Takeaways

1. Both mutual funds and ETFs are great assets to invest in.

2. There are thousands of mutual funds and ETFs that you can choose from.

3. Before picking a mutual fund or an ETF, make sure you research the performance, fees, investment strategies and underlying holdings of the funds.

We hope this helps you become more financially independent.

As always, feel free to reach out to us if you have any questions. We are more than happy to help.

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Short answer: both are truly great and essential for investing. If you can, you should contribute to both.

Long answer: ultimately, it depends on your goals. But, if we had to pick one that you should maximize first, it would be the TFSA.

This is our ultimate quick guide for TFSA vs RRSP. Let’s break down the main features of TFSA vs RRSP.

TFSA (Tax-Free Savings Account) Features:

• You won’t get taxed! All your investment returns (capital gains, dividends and interest income) will grow tax-free, even if you choose to withdraw your money.

• You can contribute up to $6,000 a year. Contribution room is retroactive, meaning if you’ve never contributed to a TFSA and have been eligible since its introduction in 2009, you can contribute up to $75,500 in 2021.

• You can invest your money in a range of securities, including mutual funds, exchange-traded funds, stocks, bonds and GICs.

• Better suited for individuals earning less than $50,000 a year, and is intended for all kinds of savings goals.

• You can continue to contribute indefinitely.

RRSP (Registered Retirement Savings Plan) Features:

• You won’t get taxed! All your investment returns will grow tax-free. But, you will get taxed if you choose to withdraw your money (unless this withdrawn money is applied towards the Home Buyer’s Plan).

• You can contribute up to 18% of the earned income you reported on your most recent tax return, up to a maximum of $27,830 in 2021.

• RRSP contributions can be claimed as a deduction on your tax return, as a way to lower your income taxes. Plus, if your income is lower in one year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you’re in a higher tax bracket.

• You can invest your money in a range of securities, including mutual funds, exchange-traded funds, stocks, bonds and GICs.

• Better suited for individuals earning more than $50,000 a year, and is intended for retirement savings.

• You can continue to contribute until the age of 71. Then, you may withdraw your money in a tax-efficient manner using a RRIF (Registered Retirement Income Fund).

Helpful Tips

If you work full-time for a company that provides Group RRSP to their employees, and your company matches employee contributions towards their RRSP, take advantage of this and make sure that you enroll in their Group RRSP. This is basically free money.

For example: let’s say your company matches all employee contributions towards their RRSP, up to 5% of their earnings. If your monthly paycheck is $5,000 and you contribute 5% of this amount ($250) towards your RRSP, your company will match this amount and contribute 5%, or $250 towards your RRSP. That’s an extra $250 that you get for just contributing to your RRSP.

TFSAs and RRSPs can be personally managed by you (self-directed) or managed professionally by someone else (such as a Portfolio Manager or a robo-advisor). Most financial institutions, such as banks and investment dealers offer TFSAs and RRSPs.

If you are considering opening up your own self-directed TFSA or RRSP, we recommend Wealthsimple Trade, a commission-free trading platform with millions of Canadian users. Sign up here and get $10 to start investing for free.

Major Takeaways

1. Both TFSA and RRSP are essential and will help reduce your taxes.

2. Most investors would benefit greatly from prioritizing contributions to their TFSA.

3. Both TFSA and RRSP can hold a variety of different assets, such as stocks, bonds, mutual funds and exchange-traded funds.

We hope this helps you become more financially independent.

As always, feel free to reach out to us if you have any questions. We are more than happy to help.

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Compound investing is the process in which an investment’s returns are reinvested to generate more returns over time. In essence, compound investing is the absolute foundation to building long-term wealth.

It’s crucial to start investing early and for the long term.

It’s also important to continuously increase your investments by contributing more money, if you are able to. Money that isn’t invested won’t make you more money.

Factors include the starting amount of investment, the subsequent investments and their frequency, the annual return rate and how often it’s compounded, and how long you’re planning to hold the investment.

Making Money with Compound Investing

Let’s go through several hypothetical investment scenarios:

1. If you are 20 years old and you invest $100,000 today, contribute an extra $500 every MONTH to your investment, and hold on to this investment for 50 years, you will have $6 million when you’re 70 years old (assuming a rate of return of 7% a year, compounded monthly).

2. In a similar example, if you are 20 years old and you invest $100,000 today, contribute an extra $500 every QUARTER to your investment, and hold on to this investment for 50 years, you will have $4.2 million when you’re 70 years old (assuming a rate of return of 7% a year, compounded monthly).

3. Let’s say you started out investing later on in life when you’re 40 years old and you invest $100,000, contribute an extra $500 every quarter to your investment, and hold on to this investment for 30 years, you will have $1.4 million when you’re 70 years old (assuming a rate of return of 7% a year, compounded monthly).

The investment scenarios illustrated in more detail below:

This is the power of compound investing. The sooner you start, and the longer you do it for, the wealthier you will be.

Major Takeaways

1. Start investing today and aim to contribute more to your investment on a regular basis.

2. You can invest in a variety of different assets, such as stocks, bonds, mutual funds and exchange-traded funds.

3. Over the long term, your initial investment, along with your regular contributions and your investment’s returns (which will be reinvested) will make you wealthy.

We hope this helps you become more financially independent.

As always, feel free to reach out to us if you have any questions. We are more than happy to help.

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